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In 1936, the US government began circulating a series of pamphlets to explain its brand new Social Security
program, plus the associated taxes. Initially, the Social
Security tax was set at 2%. The government promised it would rise
to 3% in 1949, with no additional increases EVER:

“[F]inally, beginning in 1949. . . you and your employer will
each pay 3 cents on each dollar you earn, up to $3,000 a year.
That is the most you will ever pay.”

In 1949, the tax rose to 3% as scheduled. But it only took five
years for the government to break its promise. The tax rose to 4%
in 1954, 4.5% in 1957, 5% in 1959… and continued to rise for
decades. On January 1st it will be 12.4%.

Politicians routinely make bold promises about tax
policy… and they almost always end up being
lies. Raising taxes, i.e. plundering the wealth of
citizens, is one of the oldest tactics in the playbook for
insolvent governments, and you can be 100% certain that your
taxes will increase despite any promises to the contrary.

Perhaps most dangerously, politicians fail to understand that
raising tax rates does NOT actually increase government
tax revenue.

In the US, for example, government tax revenue has consistently
been 17.7% of GDP since the end of World War II, plus/minus a
very tight band. Similarly, the British government has
consistently collected 35% of GDP in tax revenue.

Yet over the decades, tax rates have been all over the board…
from 0% to over 90%! Plus variations in corporate profits tax,
payroll tax, estate tax, capital gains tax, dividend tax, and
(for the Brits) VAT.

On January 1, 2013, the US government will impose what my tax
attorney calls the biggest tax increase in the history of
the world. And some of the rate increases are simply
extraordinary.

The estate tax exemption, for instance, is being slashed by
EIGHTY PERCENT! And the amount that the Obama administration will
tax the rest of your estate will increase to a whopping 55%!

Moreover, dividend tax rates are set to rise from 15% to as high
as 43.4%. This affects not only US taxpayers, but
everyone on the planet who invests in the US stock
market.

Remember Finance 101– the price of a stock is theoretically the
present value of discounted future cash flows. In English, this
means that share prices should rise and fall based on the
market’s expectations about future earnings… and over the long
run, future dividends.

As a result of this tax policy, many investorswho own shares in
US companies will now see their after-tax dividends
slashed by 33%. And since their investment returns are
falling so dramatically, it stands to reason that the investments
themselves become less valuable.

This is putting a lot of downward pressure on stock
prices, affecting almost everyone who currently owns US
shares– pension funds and retirement accounts, rich and middle
class, US and non-US citizens alike. It’s as if the US government
is hanging a sign over the country saying “PLEASE DO NOT
INVEST HERE.” It’s genius.

This is the tip of the iceberg. Taxes will keep
rising. Investment returns will be destroyed. Any
incentive to start a business will be destroyed. Any benefit to
your heirs for what you have worked your entire life to pass on
will be destroyed.

All of this because a handful of morally bankrupt individuals who
run financially bankrupt governments fail to understand simple
truths about tax policy.

Bear this in mind over the next few weeks, because many new taxes
will take effect on January 1st, and it’s imperative to take
defensive action first. I strongly recommend consulting with your
tax advisor as soon as possible.